Jobless set to top two million as the UK economy heads for meltdown

The true scale of the jobs disaster facing Britain is revealed today as experts issue dire warnings that up to half a million workers will lose their jobs over the next two years, as companies cut costs and scale back investment plans to survive the economic downturn.

Official figures are widely expected to reveal this week that the number of people out of work and claiming benefits increased for a seventh successive month in August.

Finance companies based in London’s Square Mile have already laid off thousands of workers since the US mortgage crisis unleashed chaos in the world’s markets last summer; and the 5,000 UK-based staff at crisis-hit investment bank Lehman Brothers are awaiting news this weekend about how many of them will be made redundant.

The constant drip of job losses is spreading beyond the City. Karen Ward, chief UK economist at HSBC, calculates that almost a quarter of the workforce – seven million – are employed in the vulnerable retail and leisure industries. Thousands of shopworkers have already lost their jobs this year, as a succession of retail companies have gone into administration. Car manufacturers are also scaling back their production after the latest registration figures showed that last month was the worst August for new car sales since 1966.

Trade unions at Ford’s Transit van plant in Southampton will hold talks with executives tomorrow in the hope of averting layoffs. Roger Madison, national automotive officer for the Unite union, said: ‘There is just no confidence at the moment. All the companies are struggling – everyone is in the same boat.’ There are fears that the Southampton plant, employing 1,100 workers, will be closed if Ford decides to build a new model of the van at its low-cost sites in Turkey or Romania. A decision on where to build the new model is due soon.

Tomorrow union leaders will also meet executives from General Motors over its plans for a ‘down day’ on 26 September when its Vauxhall Vivaro van plant in Luton will cease production.

Last month it emerged that Toyota was cutting production at its Derbyshire plant because of a fall in demand for cars. Unite also reports that Jaguar Land Rover – owned by the Indian firm Tata – is scaling back operations.

Several housebuilders have announced big job losses as they struggle to sell new properties in the tough housing market. Barratt announced that it would cut a quarter of its workforce, and Persimmon said it would lay off 2,000 staff. In total, up to 50,000 construction workers have lost their jobs. On the broader measure favoured by the government, unemployment had already risen by 60,000 between March and June to 1.7 million. Michael Saunders, chief UK economist at Citigroup, believes the figure will continue rising for another two years, as the economy slides into recession, peaking by late 2010 at 2.25 million.

‘The only parts of the economy that have created many jobs over the past few years have been banking, finance and business services, and the public sector, and both of those look like they’re going to get much weaker,’ he said.

But economists believe it will take until at least the end of next year before a sense of optimism begins to return. In the meantime Britain’s consumers are expected to tighten their belts as the value of their homes declines and their spending power is eroded by rising food and fuel bills. That’s bad for business on the high street and across service industries, and is expected to fuel unemployment. After the travel firm XL collapsed last week, British Airways boss Willie Walsh predicted that up to 30 small airlines could go out of business.

Estate agents, too, have been hit hard. In a survey by the Royal Institution of Chartered Surveyors, some agents said they were selling just one property a week: hardly enough to justify employing a large staff. Halifax has announced that it is closing 53 branches, with the loss of up to 100 jobs. Analysts at Merrill Lynch have suggested that a third of all estate agents’ branches could close.

Hugo Sellert, head of research at online recruitment firm Monster, has noticed a decline in the number of new jobs being advertised. ‘This month what emerged most clearly was that employers seemed to be scaling back on casual and temporary recruitment,’ he said. He said the most noticeable weakening of the job market had been in East Anglia, the Midlands and London. ‘Unemployment typically lags other indicators of the health of the economy, and we’re looking at the early stages of the downturn,’ he said, adding that the UK is six to nine months behind the US, where unemployment has risen sharply to 6.1 per cent, the highest rate in five years.

Driving unemployment to a historic low was one of the proudest boasts of Gordon Brown’s decade-long chancellorship and a key element of restoring Labour’s record for economic competence.

During the 1979 election campaign, Conservative campaign posters bearing the slogan ‘Labour Isn’t Working,’ helped to dislodge the Callaghan government. But over the next four years Margaret Thatcher oversaw more than a doubling in unemployment, which shot up above three million in 1983. It hit three million again a decade later, during the painful recession of the early 1990s.

Lai Wah Co, head of economic analysis at the the Confederation of British Industry (CBI), which represents businesses, said it should also help that UK plc is now leaner than it was at the outset of the last recession. ‘Because of globalisation, companies have outsourced most offshore functions. There is not much scope for cutting back jobs. We don’t think job losses will total those of the early Nineties.’

The recent influx of migrant workers to the UK – many of whom are now going home – should also cushion the impact of falling employment. Since 2004, when eight eastern European countries joined the EU, about 845,000 migrant workers were attracted to the UK by the thriving job market. Approximately half have returned and more are following.

However, because the days of mass unemployment are a distant memory to much of today’s workforce, many employees have built up little in the way of a financial safety net, leaving them extremely vulnerable if they do lose their job. ‘Over the past 10 years, people have never had this feeling of fear,’ said a spokeswoman for Citizens’ Advice, which says unemployment is one of the major causes of financial distress. The spokeswoman said: ‘It [unemployment] doesn’t hit for a while; they often borrow more to pay for basic things, so they get themselves deeper into debt.’

As part of the government’s housing package this month, Alistair Darling, the Chancellor, announced that people who lost their jobs would be able to claim financial support to help with mortgage interest payments after 13 weeks, instead of 39 weeks as at present. The Treasury is keen to prevent job losses leading to a wave of repossessions and forced sales in the housing market, driving prices lower in a vicious circle.

Professor David Blanchflower, the US-based economist who sits on the Bank of England’s interest rate-setting committee, told MPs last week he thought two million people could already be out of work by Christmas. He has repeatedly voted for further cuts in interest rates to prevent the downturn from spiralling out of control; but has been outgunned by the majority on the committee, which has left rates on hold since April.
Case study

For Gary, 40, losing his IT job at a leading bank in the City four months ago could not have come at a worse time. ‘I was made redundant a week before my baby was born,’ he said. ‘I’d just moved into a new department and then the funding was withdrawn. I was escorted off the premises. It wasn’t pleasant.’ While he has enjoyed being around to help look after his first child, he is concerned about getting a new job. ‘I don’t think it’s going to be easy. My concern is how long it’s going to take.’ His situation is more urgent because with his wife on maternity leave, the money coming into the home has fallen sharply. ‘I have been in banking for 13 years and this is the biggest downturn. The question is how long will it take to recover?’